HURRY UP AND BUY A HOME?
If you haven’t owned one in three years, you are considered a “first-time homebuyer” for purposes of an $8,000 grant on any home (or condo) you close on by the end of November . . . so long as you don’t sell it within three years (if you do, you have to give the $8,000 back) and so long as your income is modest (click here for details).
Clearly, this is no reason alone to buy a home, or to rush to overpay for one. But if that $269,000 dream home could now be yours for $135,000 (it’s in foreclosure), and you can get a truly affordable fixed-rate mortgage – and can actually close by November 30 – well, don’t dawdle and wait to close in December. Every $8,000 helps.
Mark Klein (registered Republican): “I voted against Bush in 2000 because of his ridiculous tax cut ideas. I sent you money in 2004. In 2008 I believed Obama would be fiscally responsible, and I realize he is inheriting major problems. But a trillion dollar deficit? A TWO trillion dollar deficit?? I think that the last eight years have ruined the country permanently anyway, but running deficits like this isn’t even trying. Obama is an intelligent and perceptive man (a nice change) but my enthusiasm is rapidly dwindling.”
☞ Look at the deficits we ran in WWII – tripling the debt as a proportion of the GDP, from 40% of GDP in 1940 (after a decade of Depression and public works projects) to 121% by 1946. But we had to do it, no? How could we not win World War II? And 35 years later, as Ronald Reagan was taking office, we had reduced our National Debt ratio all the way back down to 30%.
Today we have more or less the same situation. Once we get the economy redirected – building useful things like a smart electric grid, not blowing things up – we will be able to begin the process of getting the ratio back down.
This never would have happened if Gore had been allowed to serve. But there is no alternative to fighting this “war” – we simply can’t lose it.
Mark Klein: “We have already lost it. We can never pay off our existing debt, even if we run a balanced budget from here on out. At some point we will have to default (or just print up the bills to pay it off, which amounts to the same thing). I thought the Republicans were almost obsolete (technically I am still registered as one) but running deficits like these could open a door for them to have a major rebound in 2012.”
☞ No need to pay off the debt unless we plan to close the country and go out of business. It’s the ratio that matters. That’s why it’s criminal what Bush did. But now we have no choice. And if we do reorient the economy properly . . .
“The rebuilt American economy must be more export-oriented and less consumption-oriented,” Larry Summers said Friday, “more environmentally oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented, more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population.”
. . . and if we ultimately we can grow the economy at, say, 5% (nominally, including inflation) and the debt at, say, 3%, then after 35 years we’d have gotten the ratio into much healthier territory – as we did in the 35 years after WWII. Back then it fell from 121% of GDP to 30% – until Reagan/Bush/Bush took over and began wrecking our finances. This time, in this example, with the GDP growing 2% faster than the debt, it would go from 120%, say (if the debt hits $18 trillion in three years on what by then is a $15 trillion economy), down to 60% 35 years later (at what would be a $50 trillion debt against an $83 trillion economy). And if we somehow got the numbers to 5.5% and 2.5% instead – with the economy growing 3% faster than the debt – then after 35 years we’d be at $43 trillion in debt on a $97 trillion economy, or a not too bad 44% ratio.
Still, there’s no question Bush et al put us into a HUGE hole.
Inflation may indeed result in de facto “default.” But that brings its own set of humongous problems, so I hope not. Rather, slow but steady and deliberate are the way to go, both personally (spend less, save more; plan a later, more modest retirement) and as a nation.
If we’re lucky, astounding technological progress will keep life exciting and make us richer . . . not (at least for the foreseeable future), in the amount of material and energy we consume, but in other ways we can scarcely imagine, as 20 years ago no one imagined Google or iPods or TiVo or Skype.
(If we’re really lucky and enough of that innovation emanates from America – certainly no given – our economic growth rate could be even a little higher, which would shrink the debt ratio faster still.)
MY ONLY FOREIGN CURRENCY: FXC
And if you think WE have a problem, just take a read through John Mauldin’s latest newsletter. It’s enough to give any bull (on anything, anywhere) pause. I have long argued it’s unwise to keep one’s investment cash entirely in US dollars – if one is fortunate enough to have investment cash (as opposed to, say, six months’ or a year’s “rainy day” cash). Well, after reading that newsletter, I feel less dumb that the only foreign currency I am diversified with is the Canadian dollar (via the exchange-traded fund FXC).
Tomorrow: Uma, Oona, Moo, and More
Quote of the Day
The American Constitution is, as far as I can see, the most wonderful work ever struck off at a given time by the brain and purpose of man.~Gladstone
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